1. THE STARTING PRICE
It seems as if the price goes up at auctions. But that’s only because it starts LOW. Its like starting the day with a massive hangover and saying that you are going to feel better as the day progresses. That is not a good reason to get drunk every night. Avoid drinking and you avoid the hangover. You start the day in good shape.
And that is how your sale should start from a good position, a position of strength, not of weakness.
One of the BASIC principles of price negotiation is to ALWAYS START HIGH.
You will get a much higher price if you start higher and come down, than if you start lower and try to climb up. When you start low, you can get stuck low. Its like climbing up a mountain or down the mountain. When you are climbing up you run out of energy a lot faster than when you are climbing down.
If you want a high price, START high. Auctions start low.
This is how auctions get lower prices.
2. RESERVE PRICE
The reserve price is the price at which the home can be sold. Its the lowest price a seller is prepared to accept. And that becomes the central focus of the auction.
If you are trying to get the highest price, do NOT make your lowest price the main focus of the sale.
There are two parties in a sale price negotiation a seller and a buyer. Each has their final price or their limit. The sellers final price is the reserve that is the lowest the home will sell for. The buyers final price may never be known.
There is no procedure at an auction for determining the highest price a buyer will pay. Only the highest price of the losing buyers may be known because they stop bidding once they reach their limit. But the buyer who is the highest bidder often buys at less than his or her limit.
Most buyers at auction buy for less than their limit which means most sellers at auction under-sell their homes.
You can not possibly get the highest price for your home if the central focus is on the Sellers Lowest Price. You can only get the highest price if the focus is on the Buyers Highest Price.
As a seller, you are at a huge disadvantage because your lowest price, the reserve, is always disclosed BEFORE the home is sold. That is when you hear the agent yell, Its on the market. Everyone knows your lowest price.
Not so with the buyers. If their final price is ever disclosed, it will be AFTER the sale is over. By then it is too late for the sellers.
This is how auctions get lower prices.
3. REPELS BUYERS
Research shows that more than 90 percent of buyers do NOT like auctions. It makes no sense to use a system of selling disliked by most of the buyers.
Most homebuyers are home sellers and any offer is conditional on the sale of their home. So that excludes a huge chunk of potential buyers who could possibly offer a lot higher price.
You can only get the highest price if all the buyers who may be interested in a home are given the chance to buy the home. As auctions repel so many buyers, the highest paying buyers often avoid auctions.
And this is how auctions get lower prices.
4. INCONVENIENT
One of the BASIC rules of marketing is: make it EASY for people to buy. Auctions do not make it easy. They make it hard.
Many buyers see that a home is for auction, and if the date does not suit them, they do not even bother to enquire. The buyers that are lost in this manner are often buyers who would have paid thousands of dollars more than the auctions final selling price.
And this is how auctions get lower prices.
5. BARGAIN HUNTERS
Investors, property dealers and bargain hunters all know that auctions are one of the best places to find cheap deals in real estate. It is well-known that deceased estates and mortgagee sales are often sold for a song at auction. Auction agents try to justify this by saying, Look at the banks and the Government departments. They use auctions.
But that is because they want to make sure the home is sold. The sale is more important than the price. The banks and the Government departments are not the owners in the way that consumers are owners. Many banks and Government departments do not realise they are under-selling homes at auction. Those who do, are now beginning to avoid auctions.
Property investors, developers and dealers often buy at auction. But they almost NEVER sell at auction. That is because auctions get lower prices.
6. COMPARATIVE
If two or more people want to buy the same home, the worst thing you can do, from a negotiation point, is to allow each person to SEE what the other is offering! Instead of offering their highest price, each buyer will only offer a SMALL amount above what the other buyer offered.
Auctions are touted as being competitive but the competition is in PUBLIC not private which makes it COMPARATIVE more than competitive. Everyone compares what everyone else is offering.
It is like playing cards and knowing what the others are holding. By making the negotiation so public, the buyers have a tremendous advantage over the seller. Instead of having to offer their highest price to win the auction, buyers only have to outbid the buyer below them.
And this is how auctions get lower prices.
7. DECEPTION
To persuade sellers to auction their homes, agents will talk about high prices. And then to get buyers to come to the auction, the same agents will talk about low prices. Most times both the seller AND the buyer are deceived. The sellers end up selling for less than they were told they could get, and the buyers often end up paying more than they were told they could pay.
The most infamous deceit is Dummy Bidding where agents use bogus bids to keep the auction moving. Some agents deny that Dummy Bidding exists. But consider this: How do you have an auction with only ONE bidder?
Most people think Dummy Bidding increases the price. But Dummy Bidding deceives sellers as much as buyers. It is used to get the price up to the point where it can be sold, at the reserve price.
Usually, once the home reaches its reserve, the agent stops using bogus bids. The home is then sold for its lowest price.
And this is how auctions get lower prices.
8. SELLS TO THE WRONG MARKET
To attract buyers, agents will market the home by advertising it to start from a low price. This is supposed to attract buyers. And indeed it does. But it attracts buyers who want to buy at the LOW price NOT at the price the seller wants.
Many of these buyers cant afford to pay much more than the price advertised. And so, on the day of the auction, there will be a crowd of buyers all wanting to buy at a low price.
The agent will then say to the sellers, This is what the market is telling us.
But the agent has been looking in the WRONG market a market BELOW THE VALUE of the home.
This is how auctions get lower prices.
9. FAILED AUCTIONS
When a home does not sell at auction and thousands do not it is labelled a failure. Buyers think something is wrong with it; and many will offer LOWER prices. Like a wounded animal with vultures circling, failed auctions are easy prey for bargain hunters.
This is how auctions get lower prices.
Neil Jenman Real estate
